Tagged: Personal Loan

Lenders prefer to offer home loans to individuals who have a credit score in excess of 750.
Nikhil Walavalkar | May 16, 2018 09:46 PM IST | Source: Moneycontrol.com

Issuance of a credit card marks the entry into the world of credit for most millennials. The journey that starts with a credit card generally peaks when one opts for a home loan, thanks to sky-high home prices. Obtaining a home loan at an attractive rate is a task for many. But they forget that if one uses a credit card prudently, it can help strike a better home loan deal. Here is how it works.

Lenders prefer to offer home loans to individuals that have a credit score in excess of 750. This score is not built overnight. If a borrower has been repaying the loan on time, it can help build a credit score over a period of time. Here is how your credit card usage aids in building a credit score and obtain a home loan at an attractive rate of interest.

Timely repayment of outstanding
Credit cards allow you to access funds without interest for a stipulated period of time, if you pay the entire bill before the due date. “Failure to pay the bill in full attracts interest but also harms your credit score,” Satyam Kumar, co-founder and CEO of LoanTap Financial Technologies, said.

He advises paying all credit card dues in full before the due date to ensure that the credit score goes up. If possible use standing instructions on your saving bank account, so that the lender debits the bill from your account. If you pay the minimum amount due, even though the banker is not treating it as a default, credit score companies do not take it positively.

If you miss your bill payment once in a while by a couple of days, it may not kill your credit score. But avoid repeating such instances a few months before applying for a home loan.

Credit utilisation ratio
“Keep your credit utilisation ratio low at around 30 percent,” Kumar stated. For beginners, it stands for how much credit one uses out of the allotted limit. It is calculated for each card separately as well as jointly for all cards. For example, if you have two credit cards – A and B – with a credit limit of Rs 1 lakh each. and spend Rs 60,000 and Rs 2,000 on these cards, respectively. Then the credit utilisation ratio for Card A and B stands at 60 percent and two percent, respectively. Jointly it stands at 31 percent. Had the user spread this expenses equally on both cards he would have been closer to the 30 percent mark.

Once in a while this number may go up. But consistently high numbers shows a credit hungry behaviour. If you are using a credit card with low limits, it makes sense to ask your banker to increase the credit limit on the credit card. This will ensure that your credit utilisation ratio falls, if you keep spending a similar amount.

Longevity of your credit card accounts
Credit score gives more weightage to older credit accounts. Longer the repayment history, better is the credit score. Avoid closing your old credit card accounts. Keep using the old credit card and repaying it before the due date helps the credit score.

Personal loans on credit cards
Many prefer to avail personal loans on their credit card to avoid paying a high rate of interest. This move blocks their credit card limit. The borrower is also expected to repay the loan on time. Late payments or defaults on these loans also pull down one’s credit score.

“Be diligent while repaying these personal loans as they are high-cost credit compared to other secured loan options. Also, failure to repay leads to a fall in credit score,” Vishal Dhawan, Founder and Chief Financial Planner at Plan Ahead Wealth Managers, said.

Disputes
If there is a dispute with the lender pertaining to a transaction or charge on the credit card, do not ignore it. “Sometimes individuals tear the credit card as they are unhappy with the service. However, it does not help. One has to ensure there is no outstanding and formally close it,” Dhawan added.

Opting for a one-time settlement or not paying it up will lead to adverse remarks in your credit report. “If you spot a disputed transaction or a charge on your credit card, it makes sense to speak with the card issuer and follow up for an amicable resolution,” Kumar said.

If you use your credit card prudently, there is a high possibility that your credit score will remain good and you will be offered a better deal.

No need to press the panic button. You can still ensure your child has the dream wedding you envisioned.
Rajeev Mahajan | May 15, 2018 08:27 AM IST | Source: Moneycontrol.com

Preparing for your child’s wedding? You may want the nuptials to be fabulous – with a dreamy ambiance, excellent food and scented flowers. While Indian parents invariably create a decent corpus for the auspicious occasion, there may emerge a scenario when the budget spirals out of control and resources are just not enough.

No need to press the panic button just yet. You can still ensure your child has the dream wedding you envisioned. Read on for some easy options that can help you in organise the funds needed for the special day.

Personal loan
A personal loan is an excellent way to defray expenses without fretting over offering collateral. Most financial institutions, including nationalised banks and NBFCs, offer personal loans. Since it is unsecured in nature, the interest rate is a tad steep and ranges between 14 percent and 24 percent a year. There are, however, a few criterions for sanction, chiefly your monthly income.

Loan against property
This is another option that provides you a financial buffer against unexpected wedding costs. You can pledge residential/commercial property or a plot of land at its prevailing market value to avail funding from a bank.

The approval for loan against property is straightforward, provided all valid documents are in place. Since it is a secured loan, the rate of interest is affordable as the lender can recover the borrowed amount by selling the mortgaged property in case of default.

Wedding loan
One can also avoid a cash crunch by opting for a wedding loan. These loans are granted by many financial establishments under the personal loan category. A wedding loan is sanctioned on the basis of factors like your employment status, net monthly income, credit score, past loan history and your ability to pay back.

Given that no guarantor is required, the interest rates are high. Also, the tenure option is flexible. You can avail the pre-payment facility and settle the outstanding balance amount before the due date, thereby saving on the high interest rate.

Loan against securities
Another way to ease the financial burden of your child’s wedding is by opting for a secured loan. Banks and financial institutes offer assistance against mortgage of financial assets: term deposits, savings certificates or life insurance policies. The amount sanctioned depends on the value of the collateral. Since lenders have the security of retrieving their investment in the event of an interest rate default, the interest rate is low around 12-15 percent annually. Also, unsecured loans don’t require much documentation.

P2P lending platform
Do you have a less favourable CIBIL score? You may want to consider a peer-to-peer (P2P) lending platform to raise money for essential wedding expenses. The P2P route though still in infancy is being viewed as an attractive alternative to personal loans.

The online lending phenomenon is uncomplicated and allows you to borrow money directly from investors at attractive rates on the basis of your creditworthiness. What’s more, the entire funding procedure is accomplished with speed and without too much paperwork.

Crowdfunding campaign
Looking for another alternative to bail you out from a stressful situation? Adopt the crowd-funding path to offset some of the rising wedding costs. It is an innovative measure that can help raise funds quickly to cover the shortfall. In recent years, crowdfunding websites have mushroomed in large numbers.

The concept is simple. Just create a compelling page online along with a target amount and then share the link with close friends, neighbours, relatives, co-workers, among others. You might be surprised at the number of contributions that come towards the wedding kitty.

Borrow from family members
Tried all the above options in vain and still running short? Seek the support of close family members to tide over the wedding expenses that have suddenly emerged. But before taking this step make sure you have a repayment plan in place after the big day.

This is important since loans taken from loved ones are interest-free and flexible with no signed agreement. The best way is to hand over a promissory note with the assurance that the borrowed amount will be reimbursed by a specific date.

Exploring the above funding options will help you in planning your child’s wedding without any financial constraints. It is important to exercise restraint and not exceed the wedding budget drastically, so that the borrowings do not lead to financial distress. At the end of the day, one must remember that the loan acquired is a debt that has to be repaid.

There are many easy ways to quickly improve your credit history and score. But if you are not careful, these measures may even jeopardise your financial security
Shaikh Zoaib Saleem | First Published: Mon, Nov 27 2017. 12 37 AM IST | Livemint.com

If you need a loan to buy something you cannot fund immediately, you approach a financial institution—typically a bank or a non-banking financial company (NBFC). When you do that, the financial institution runs a background check on you, from its own database (if you are an existing customer) and also from a credit information bureau. The credit information bureau is authorized by the Reserve Bank of India (RBI) to gather information on loans and borrowers from banks and analyse it to arrive at a score of creditworthiness of an individual. If your creditworthiness is good, you would get a loan relatively easily and at better terms. If not, either the loan will be rejected or you will be charged a higher interest rate. This is especially true in case of personal loans. The institutions’ decision to lend is based in large measure on the credit score and the credit report.

What is a credit score?

It is a number based on your credit report, which is a summary of your past and current borrowing and repayment history. If you were regular with repaying loans, including your credit card bills, your credit score is likely to be higher. This score helps banks assess your loan repayment capacity and your chances of defaulting on it. “Credit score is derived from the credit history of an individual. A consumer needs to have a minimum of 6 months of repayment track record on a loan or credit card or closed credit accounts less than 2 years old before a credit bureau can generate a credit score,” said Hrushikesh Mehta, vice-president and head of direct-to-consumer business, TransUnion CIBIL. A credit score is created as your lending and repayment relationship with financial institutions evolves. However, if you are new to credit, here are some ways you can quickly start to build a credit score.

Credit cards or personal loans

If you are new in the workforce, you can start by getting a low-limit credit card from the bank where you have a salary account, said Sumit Bali, senior executive vice president and head-personal assets, Kotak Mahindra Bank Ltd. “Based on their income, banks can give them a card with low limit. Use that card sensibly and build a credit history,” he said.

In the past, people considered taking personal loans to build their credit score. However, with a personal loan you will necessarily have to spend your money in paying the interest, whereas with credit card repayments within the stipulated time, you do not have to shell out extra money. For slightly older professionals, about 35 years old, credit history is not much of a worry if their bank account status and average balance are good, and investments and tax returns are in place. They “don’t really need a credit card to prove credit worthiness. Any bank would sensibly look at it and take a call,” Bali said.

Peer-to-peer (P2P) lending platforms are an emerging option for creating and enhancing your credit history. The RBI has recognized these platforms as special category NBFCs and has mandated them to share lending data with credit information bureaus. “Once the P2P lenders receive their licence, they will be able to begin data submission. Once that happens, P2P lending will become a viable option in helping one build a credit score,” said Mehta. However, in this case too, you will have to pay an interest on the borrowed amount.

In some cases, especially where customers have a long relationship with their bank, the banks may also look at own data to determine creditworthiness, Bali added. “Credit score by and large is a good indicator but it may not be the only indicator,” he said.

Alternative credit scoring

Evaluating someone who has never taken a loan can be difficult. This is where alternative credit scoring comes in. Here, instead of relying on a credit score, lenders consider your transactions and behavioural data like bill payments, online buying behaviour and information from your social media platforms to understand your repayment capacity.

“Often people are refused big-ticket loans like a home loan for the lack of credit history, even if their finances are in order,” said Abhishek Agarwal, chief executive officer and co-founder, CreditVidya, a credit advisory that also works on alternative credit scores.

While the RBI-regulated credit bureaus are currently not allowed to use alternative data for credit scoring; in other developed markets parameters like utility bill payments, insurance premium payments have been used for credit scoring (read more on it here.

However, financial institutions including top public and private sector banks and NBFCs in India, have started using alternative data in multiple verifications and validations across the credit value chain, Agarwal said. “Innovative offerings like pre-approved offers or instant loans are leveraging alternative data from multiple sources to provide seamless customer experience,” he said, adding that leveraging alternative data for credit risk assessment of secured loans is still distant. Banks use the alternative scores “in conjunction with other things, like data that you have about the customer. This is happening for personal consumption products like credit cards and salaried personal loans. We are putting it to use but what is the outcome from that, it is too early to say,” Bali said.

While credit cards and loans help to build a credit history and score, caution needs to be exercised. If used carelessly, these can put you in a debt trap, and ruin your credit history too.

Not just that, you should also keep your digital and transactional behaviour in check, as going forward more and more data could be used to assign you a credit score.

A financial emergency can hit any time—a sudden hospitalisation, a natural calamity or even an unexpected celebration at short notice.

While money pundits say you must have an emergency fund equal to six months’ expenses in place, not everyone follows this rule diligently.

So, where do you get cash instantly to tide over a financial disaster? Don’t despair. There are a few ways you can get money in a pinch, depending on how urgently you want the funds. “The key things that will determine where you get the money from are how urgently you want the funds, the tenure of the loan, the interest and how expensive will it be to source the funds,” says Navin Chandani, Chief Business Development Officer, BankBazaar.com

Before you opt to borrow money, be sure that it is really needed. Even then, borrow as little as possible. Remember, it is a loan and you need to ultimately repay it. If you are unable to do it on time, you could end up in a debt trap.

“If you need funds ASAP, consider your workplace first. Many companies extend an advance on salaries,” says financial trainer P.V. Subramanyam. The funds could be equivalent to 1-6 month’s takehome pay and will be deducted from the salary over 3-24 months.

Upside : The loan can be custom-ised to your needs, and you will be able to get the money within three days.

Downside : The loan will be taxable as part of your salary. It will be exempt only if the funds are used for certain medical treatments or if the amount is less than Rs 20,000.

2. CASH WITHDRAWAL ON A CREDIT CARD
Interest rate : 2-3.5 % a month

A credit card can be used to withdraw money from an ATM, the amount being equivalent to 40-80% of your card limit. However, there might be a cap on daily cash withdrawal. Most banks will allow you to over-extend your limit on a caseto-case basis. Be ready to cough up an over-limit fee over and above the usual interest rate on cash advance.

Upside : Instant cash, available anywhere, anytime.

Downside : A transaction fee of 2.5-3%. Interest is levied on the money from the day it is withdrawn until it is fully repaid.

3. TOP-UP LOAN
Interest rate : 9-13%

Already have a home loan? If yes, you can use it to get a top-up loan of up to Rs 50 lakh for a maximum of 20 years or till the balance tenure of your original home. This option works if you have repaid the original home loan for some years as the combined value of the home loan and the top-up cannot exceed 75% of the value of the house.

Upside : You can get a loan quickly, in three days, since the bank has your documents.

Downside : Any default in repayment could cost you big.

4. PERSONAL LOAN
Interest rate 13-24%

One of the quickest options for borrowing money. You can get a loan within 30 minutes to three days, depending on your relationship with the bank. In fact, you might already have a preapproved loan in your name from your bank which will make the process faster.

Upside: Quick disbursement if you borrow from your own bank.

Downside: High interest rate and processing fee of 2-3%. You will also have to pay GST on EMIs. For prepayment, a foreclosure fee of 2.5% of the outstanding amount is charged.

5. LOAN AGAINST PROPERTY
Interest rate 9.5-13%

If you want a large loan and own a house, you could take a loan against property. You can loan Rs 5 lakh to Rs 10 crore, depending on the market value of your house. The loan tenure varies between 2 and 15 years. Both residential and commercial properties can be used as collateral. Banks could to lend you up to 65% of the value of your property. However, the house must be insured. Processing fee is 1.5-2% while prepayment charges are 2-3% of the outstanding.

Upside : Quick disbursement, lower interest charges.

Downside : If portfolio value declines, you will have to put in the differential or pledge more funds/shares.

You can get 60% of the value of your gold and can borrow from Rs 10,000 to Rs 25 lakh. The tenure is usually 6 months or 12 months but you can renew the loan at a nominal charge. While you can repay part of the loan whenever you want, gold you have pledged as collateral is released only after you repay the entire loan.

Upside : You can get funds within a day.

Downside : Gold appraisal charges of Rs 250-2,500. If you are unable to repay loan, you will lose the gold.

Personal loan is an unsecured loan with one of the highest interest rates of all credit products. To avail one, an applicant must have a reliable credit rating. Do carefully consider the following points and assess which personal loan is the best for you.
By: Adhil Shetty | Published: August 23, 2016 6:04 AM | The Financial Express

Personal loan is an unsecured loan with one of the highest interest rates of all credit products. To avail one, an applicant must have a reliable credit rating. Do carefully consider the following points and assess which personal loan is the best for you.

Eligibility
The eligibility of a borrower varies from bank to bank. The primary criterion is the capability of loan repayment. Other criteria include your age, profile, place of work and lots more depending on the bank’s requirement.

Interest rates
In August, the interest rates of personal loans from some of the leading banks of India ranged between 11.15 and 22%. The better your credit score, the lower your interest rate would likely be while obtaining a loan. A CIBIL score of 750 or more will get you a favourable interest rate. You could also go to a bank with whom you have a long-term association, based on which you could get a bargain.

Tenure of loan
Typically, such loans are of a 12-60 month tenure. Long-term loans may carry higher interest rates than shorter ones, but you can have the option of paying smaller EMIs on a longer term. Evaluate your EMI burden and arrive at an amount you are comfortable with before settling on a tenure. Have the shortest possible tenure to avoid paying a lot on interest.

Flexibility of repayment
Check out if you have the option of making principal payments on your loan at no cost. Some lenders charge a prepayment fee for settling a loan before its tenure. You may want to skip lenders who have prepayment charges since they disincentivise the quick settling of loans.

Loan amount
The amount you would receive from the lender is tied to your income. The higher your disposable income, the bigger the loan you stand to receive. Often, lenders with whom you have a relationship such as a credit card or a savings account, would approach you with a ready-made offer of a personal loan. You should take a loan according to the size of your requirement. Make sure the borrowed amount is used productively and not squandered on expenses it wasn’t meant for.

Fees and charges
Besides rate of interest, banks also charge fees on documentation, processing and pre-closing the loan. Processing fees mostly range from 2% to 3% of the loan amount. The pre-closing fees also vary from 2-3% of the loan amount. If you are good at haggling, you can get the per cent of fees and charges reduced.

Finally, don’t go overboard
Avoid the temptation of applying to too many lenders for a loan. This would reveal you as credit-hungry. Too many inquiries into your credit history could also bring down your credit score, making it tougher and more expensive for you to avail a loan.

Refinancing a home loan means availing a new loan from another lender to pay off an existing one. Two primary reasons for switching a housing loan (also known as refinancing) are:(1) To get the benefit of a lower rate of interest and (2) To avail a top-up on the original loan amount. However, besides these two, there could also be many other reasons for taking a new loan to pay off an older one. These can be poor service quality of the existing lender and consolidation of loan portfolio, among others.

Here we take a look at five most common and compelling reasons for home loan refinance:

1. Saving on interest cost: This is the most common reason for shifting the home loan to a new lender. If an individual, for instance, is paying higher interest on an existing home loan than that offered by another lender, he would naturally be tempted to go for a new loan that brings down his total interest cost and consequently his EMI.

A declining interest rate scenario also leads to several people opting to refinance their home loan. It is common knowledge that most home loans are floating rate loans, which means they are linked to overall macro interest rate movements. Not all lenders reduce the interest they charge on their loans when the general interest rates in the economy fall. Some lenders reduce their rates after a lag and some do not reduce the rates as much as the base rate declines.

“It is often seen that when home loan rates move upwards, all customers’ loan rates tend to go north. However, there is a possibility of the rates of not all loans coming downwards in the reverse situation. This also makes home loan refinance an attractive option as your current loan gets adjusted to prevailing market interest rates, giving you significant interest cost savings and reducing your monthly EMI burden,” says Parth Pande, co-founder of Finance Buddha, a marketplace for retail lending products.

2. Moving from floating rate loans to fixed loans or vice versa: Home loan customers may be in any of these two scenarios. They may be paying a high floating interest rate and therefore are likely to see value in moving to a fixed rate home loan, in which case their EMI will be constant for a certain period of time. Alternatively, they may be stuck with a fixed home loan at a higher rate (fixed rate loans typically are at a higher rate than floating rate loans at any point of time). In this case, they may realise that the overall interest rates have moved southwards and floating rate loans are much cheaper than their existing loan and there is value in switching the loan. In both these scenarios one may like to opt for refinance.

Let us take the example of an individual who had opted for a 20-year fixed rate home loan of Rs 50 lakh at 12.25% per annum two years ago and is now paying an EMI of around Rs 56,000. “After paying the EMI for two years, his outstanding loan amount is Rs 48,67,866. For the rest of the tenure (18 years), he decides to shift to another bank which is offering floating rate home loan at 9.75% per annum. This way he reduces his EMI from Rs 56,000 to close to Rs 48,000 and his total interest cost comes down from Rs 84 lakh to Rs 67 lakh,” says Rishi Mehra, co-founder of deal4loans.com, a loan comparison service engine.

True, the individual may have to incur some charges for pre-closing his loan and getting his loan refinanced from another lender, but those charges are likely to be negligible compared to the savings he will be able to get during the remaining tenure of the loan.

3. Additional loan opportunity: Along with home loan refinance, customers also have an option of taking incremental funding (also known as top-up) at the prevailing home loan rates. For example, Mr A took a Rs 40-lakh loan for buying a Rs 50-lakh property 5 years back. After paying the EMIs for 5 years, let’s assume that the loan value has come down to Rs 30 lakh, however the property value has appreciated to Rs 1 crore.

“This means that Mr A can now get a home loan of up to Rs 80 lakh on this property, if he so desires. But he can’t avail the entire amount as loan as he still has an outstanding loan of Rs 30 lakh which he has to clear first before taking the new loan. In this case Mr A can get his loan refinanced from another lender to transfer the Rs 30-lakh outstanding amount at a lower interest cost, while he can also get incremental funding of Rs 50 lakh (Rs 80 lakh minus Rs 30 lakh) at more or less the same interest rate,” informs Pande.

However, you should opt for a top-up of your loan from another lender only if you are getting the benefit of lower rates, otherwise try to get it from your existing lender as that would be easier and you also won’t have to incur charges for getting the loan refinanced. “Should you plan to switch your housing loan to avail the ‘top-up’ option, I would advise you to approach your existing bank for a top-up plan, in case the interest rates are similar. If your loan repayment track record is good as well as the value of the property has appreciated, there is a good chance that the existing lender would consider your request for a top-up,” says Naveen Kukreja, co-founder and CEO, PaisaBazaar.

4. Poor service of the existing bank: If the bank from which you have taken your home loan does not service you properly- for instance, if it does not issue loan statements on time, provides bad customer care services or is slow in reacting to changes in interest rates-there is every reason for you to get your loan refinanced from a lender which is known for providing good services.

5. Change in financial status: Any increase or decrease in your income would affect your ability to service your EMIs. In case your monthly income has decreased due to any reason or another financial obligation has come up, refinancing a home loan by replacing it with one with a longer tenure is a good idea to reduce your EMI amount. “On the other hand, in case you are in a better financial position compared to when you had taken a home loan, it may be a good time to opt for home loan refinance and reduce the tenure of the loan, thereby increasing your EMI amount but making sure you will be now be able to repay your home loan sooner,” says Adhil Shetty, founder & CEO of BankBazaar.com.

Thus, apart from other benefits, one can save significantly if one refinances one’s home loan keeping in mind the overall interest rate movements in the economy. However, there is need to take some precautions.

Watch-outs

Here’s what you need to keep in mind while opting for home loan refinance:

# Try to switch the loan early on during the tenure. “It is advisable not to make the switch after 5-6 years of loan payment as you would have already paid most part of the interest amount during the initial period,” says Kukreja.

# Secure clarity on processing fee, valuation fee and other charges that will be applicable in case you opt for a fresh loan.

# Be aware of the fact that the new bank/lender would treat your request for home loan as fresh and hence, you will have to go through all procedures again. This is inclusive of legal verification of your property credentials, credit appraisals etc.

# Make sure that you get a statement from your current lender stating that all relevant documents will be transferred to the new lender within a stipulated time-frame.

# You may not be able to switch the housing loan if you have been irregular with loan repayment in the past.

Arvind is an IT professional, living in a metro with his wife and children. His income has been steadily rising over the last 10 years. The family leads a comfortable life, despite servicing a home loan taken eight years ago. Arvind’s wife now wants to renovate the house. The family had not planned on or saved for this expenditure. Arvind is unable to spare any funds and he does not want to draw from his existing investments. Since the renovation is going to be a one-time expenditure, his wife suggests that they take a personal loan. Is that the right thing to do?

Arvind is not keen on going through the hassless of applying for a new loan. Since he already has a running home loan, his financial adviser suggests taking a top-up loan, which would be a better and faster option than a personal loan. Arvind will be eligible for a top-up loan now since the original loan was taken eight years ago and he has been diligently paying all the EMIs towards repaying that. Moreover, thanks to the steady rise in his income, he will be eligible for a sufficiently big topup loan.

Considering Arvind is an existing customer, the documentation and the overall process will be fast in case of a top-up loan as there is an existing relationship and the history is known by the lender. Moreover, with a top-up loan, he gets the benefit of a longer repayment tenure. The maximum tenure for a personal loan is 5 years while a top-up loan’s tenure could go up to the remaining tenure of the home loan. Also, the interest rates on top-up loans are lower than a personal loan. A personal loan is unsecured, while the top-up is an additional home loan secured by the property. Additionally, Arvind will be able to seek tax benefits as he plans to utilise the top-up loan amount for renovating the existing house.

For someone like Arvind who has a good repayment track record, availing a top-up loan may work out to be an efficient solution. He would get the benefit of a secured loan (lower interest rate and EMI, longer tenure) without having to mortgage a new asset. He should, however, review the insurance cover for the loan and ensure that it is also modified to cover the new increased liability.